2015 Performance
Stock Market Outlook

Plan, do, check, act: the simple, four step management process popularized by Edward Deming. After a year of "doing", it's time to check the outcomes and see just how well (or poorly) the weekly "Stock Market Outlook" performed in 2015.

My expectations are mixed. With a relatively flat market, attempts to get into and out of the market often leave investors and traders with a whole lot of nothing...and brokers with a lot of profit from commissions.

That said, the weekly market outlook has a longer timeframe, so the volatility (in terms of number of buy and sell signals) should be low.

Results = Success!

Symbol Type Buy/Hold Market Outlook
S&P500 ^SPX Index -0.5% 3.4%
S&P500 SPY ETF -0.2% 4.8%
S&P500 FXSIX Mutual Fund 0.2% 4.6%
Nasdaq QQQ ETF 9.0% 11.5%
Russell 2000 IWM ETF -4.7% 1.1%

The results are pretty good. I talk about safe investing as a path to wealth, which includes aggressively protecting your capital from losses. And that is exactly what the methods managed to accomplish last year.

Methodology

As a refresher, I used 3 different trading methodologies and subjectively combine them into a weekly market outlook.

Every Sunday, I review the previous week’s market action and decide whether the outlook (uptrend, mixed, or downtrend) has changed, based on the signals from the 3 trading methodologies.

By cross-referencing three different methods and only changing outlooks when they all align, I reduce the number of false signals.

  • 20, 50, and 200 day moving averages
  • Price/volume, distribution days, follow-through days
  • Objective Elliott Wave (via Tony Caldero)

Trading Criteria – Investment Type

Since we can’t directly buy shares of an index, we need to go with the next best thing; funds. I chose two S&P funds (SPDR SPY and Fidelity FXSIX) based on their common availability in individual and retirement trading accounts, as well as a fund based on the NASDAQ (Powershares QQQ) and Russell 2000 (iShares IWM), to see how well the signals translate across the various market average types and providers.

Trading Criteria - Buy and Sell Prices

The forward looking outlook (uptrend, downtrend, mixed) is posted on Sunday, based on stock market price action from the prior week. Since that week is already in the books, there is no way for you to "trade" at the same prices that shaped the outlook.

That means, if you decided to take action, you'd make your moves between the market's opening price on Monday (the next day) and the closing price on Friday afternoon. For better or worse, I'm using Friday's weekly closing price as my buy/sell price for any trade. You will rarely, if ever, get the opening price, funny things happen when price "gaps" at the open, and catching the high or low during the week isn't feasible for 95% of the people reading this blog.

Trading Criteria - Transaction Prices

I'm assuming that trades are placed in an account with Fidelity, so transactions cost $7.95 per trade. Everyone should be using a low cost broker, and there are several with lower costs than Fidelity...just FYI.

Trading Criteria - Position Sizing

For this study, I used a position size of 100 shares to keep the math simple. If I were buy shares of an index ETF (SPY for example), position size would be customized based on the size of my total portfolio and my risk tolerance (how much I’m willing to lose before selling the position).

Trading Criteria - Buy and Sell Signals

Shares are purchased if the market outlook changes to an uptrend.

If the outlook is mixed, sit on your hands and watch.

If the outlook changes to a downtrend, the entire position is sold.

Issues and Objections

Stock markets can fluctuate quite a bit during the trading week, which makes the weekly review lag the market. Also, trend changes aren’t nice enough to change at the same time every week. Thinking that a change in trend will happen at the end of every week is like expecting fellow drivers to use their turn signals. Not gonna happen. So using Friday’s closing price as the buy or sell price will not always match the price level that triggered the change in trend.

Are you always going to buy in an uptrend, sit on your hands when the market is "mixed", or sell before a downtrend takes hold? No. General trends are great for giving you a sense of the overall investing environment. But each of your positions needs to be evaluated on its own merits.

Data

For the analysis, I used historical data from Yahoo Finance. Here's an example for the SPY calculations:

Week Date Signal SPY 100 Buy/Sell
Open Close
52 12/28/2015 Mixed 204.86 203.87
51 12/21/2015 Down 201.41 205.68
50 12/14/2015 Down 202.07 200.02 $19,994.05
49 12/7/2015 Up 209.23 200.69
48 11/30/2015 Up 209.75 208.38
47 11/23/2015 Up 209.38 208.32
46 11/16/2015 Mixed 202.32 208.07
45 11/9/2015 Up 209.31 201.34
44 11/2/2015 Up 208.32 208.80
43 10/26/2015 Up 207.30 206.70
42 10/19/2015 Up 202.50 206.28
41 10/12/2015 Up 201.42 202.07 $(20,214.69)
40 10/5/2015 Mixed 196.46 200.14
39 9/28/2015 Down 191.78 193.85
38 9/21/2015 Mixed 196.44 191.73
37 9/14/2015 Down 196.95 194.29
36 9/8/2015 Down 195.94 194.56
35 8/31/2015 Down 198.11 190.46
34 8/24/2015 Down 187.49 197.08
33 8/17/2015 Down 208.71 195.64
32 8/10/2015 Down 209.28 207.10 $ 20,702.48
31 8/3/2015 Mixed 210.46 205.65
30 7/27/2015 Mixed 206.94 208.17
29 7/20/2015 Up 212.75 205.70
28 7/13/2015 Mixed 208.99 210.12
27 7/6/2015 Mixed 205.77 205.19
26 6/29/2015 Mixed 208.05 205.03
25 6/22/2015 Up 211.91 207.50
24 6/15/2015 Mixed 208.64 208.48
23 6/8/2015 Mixed 209.64 206.68
22 6/1/2015 Mixed 211.94 206.45
21 5/26/2015 Up 212.40 207.79
20 5/18/2015 Up 212.24 209.62
19 5/11/2015 Mixed 211.57 209.07
18 5/4/2015 Mixed 211.23 208.27
17 4/27/2015 Up 212.33 207.38
16 4/20/2015 Mixed 209.06 208.30
15 4/13/2015 Up 209.87 204.66
14 4/6/2015 Mixed 205.37 206.71
13 3/30/2015 Mixed 206.98 203.17
12 3/23/2015 Up 210.42 202.48
11 3/16/2015 Mixed 206.71 207.08
10 3/9/2015 Mixed 207.74 201.67
9 3/2/2015 Up 210.78 203.30
8 2/23/2015 Up 210.94 206.40
7 2/17/2015 Up 209.40 206.97
6 2/9/2015 Mixed 204.77 205.54
5 2/2/2015 Mixed 200.05 201.39
4 1/26/2015 Up 204.71 195.42 $(19,549.70)
3 1/20/2015 Mixed 202.40 200.83
2 1/12/2015 Mixed 204.41 197.55
1 1/5/2015 Mixed 204.17 200.12
Market Outlook $932.14
4.8%
Buy/Hold $(45.90)
-0.2%

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Hypothetical Presentations:
Any referenced performance is “as calculated” using the referenced funds and has not been independently verified. This presentation does not discuss, directly or indirectly, the amount of the profits or losses, realized or unrealized, by any reader or contributor, from any specific funds or securities.

The author and/or any reader may have experienced materially different performance based upon various factors during the corresponding time periods. To the extent that any portion of the content reflects hypothetical results that were achieved by means of the retroactive application of a back-tested model, such results have inherent limitations, including:

  1. Model results do not reflect the results of actual trading using assets, but were achieved by means of the retroactive application of the referenced models, certain aspects of which may have been designed with the benefit of hindsight
  2. Back-tested performance may not reflect the impact that any material market or economic factors might have had on the use of a trading model if the model had been used during the period to actually manage assets
  3. Actual investment results during the corresponding time periods may have been materially different from those portrayed in the model
Past performance may not be indicative of future results. Therefore, no one should assume that future performance will be profitable, or equal to any corresponding historical index.

The S&P 500 Composite Total Return Index (the "S&P") is a market capitalization-weighted index of 500 widely held stocks often used as a proxy for the stock market. Standard & Poor's chooses the member companies for the S&P based on market size, liquidity, and industry group representation. Included are the common stocks of industrial, financial, utility, and transportation companies. The S&P is not an index into which an investor can directly invest. The historical S&P performance results (and those of all other indices) are provided exclusively for comparison purposes only, so as to provide general comparative information to assist an individual in determining whether the performance of a specific portfolio or model meets, or continues to meet investment objective(s). The model and indices performance results do not reflect the impact of taxes.

Investing involves risk (even the “safe” kind)! Past performance does not guarantee or indicate future results. Different types of investments involve varying degrees of underlying risk. Therefore, do not assume that future performance of any specific investment or investment strategy be suitable for your portfolio or individual situation, will be profitable, equal any historical performance level(s), or prove successful (including the investments and/or investment strategies describe on this site).